Shares of media giant Time Warner Inc. ( TWX ) achieved a 52-week high of $87.23 on the last trading day, eventually closing at the same price and amassing a year-to-date return of 48.9%.
Shares of the company have been gaining traction since it announced the rejection of Rupert Murdoch-led Twenty-First Century Fox
's ( FOXA
) proposal of acquiring all of Time Warner's stock in exchange of 1.531 of its Class A shares with $32.42 in cash per share. Following the announcement, shares of Time Warner have climbed 4.9%.
Rumors of Time Warner as a potential takeover target surfaced after the company shed its assets to focus on its core operations. The company has spun off its America Online, Time Warner Cable
) and Time Inc. ( TIME
) units in to independent companies in the past, in order to unlock its real value.
Time Warner turned down Murdoch's offer citing that the company's own robust strategies and an efficient management team were enough to drive shareholder value. By implementing its current strategy, the company has generated over 150% as total shareholder return since 2008, thus making investors more constructive on its stock.
Going by the fundamentals, we believe Time Warner's initiatives such as its foray into new markets, divestment activities and digital endeavors augur well for its operating performance.
This is also quite evident from the company's better-than-expected first-quarter 2014 earnings of 91 cents per share that surpassed the Zacks Consensus Estimate of 88 cents and increased 20% year over year, reflecting strength across Turner, Home Box Office (HBO) and Warner Bros.
Moreover, the company's investments in programming, production and marketing, coupled with its focus on operating and capital efficiencies bode well. Also, the company has been expanding its digital presence to facilitate consumers to enjoy contents on more platforms and devices.
In our view, management's projection of growth in the low teens in earnings per share for 2014 seems quite achievable. Alongside, the company has long-term EPS growth rate of 3.4%, instilling further confidence amongst investors on this Zacks Rank #3 (Hold) stock.
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